You're the employer

Our initial thoughts on the city Republicans' pension initiative

On a Tuesday evening in early February, during a public forum in Hillcrest on the city’s budget deficit, Mike Zucchet challenged City Councilmember Carl DeMaio. Zucchet, general manager of the Municipal Employees Association—the union representing the city’s white-collar workers—asked DeMaio why, in his “Roadmap to Recovery” budget-fixing plan, he stopped at the year 2025 when showing how much money the city will have to pay into its employee-pension fund.

Zucchet figured the answer was that in 2026, after the estimated payment balloons to $468 million, it drops to $362 million and then levels out for a couple of years before dropping to $187 million in 2029 and remaining relatively constant until at least 2040.

DeMaio said that once the payment reaches $468 million, it doesn’t really matter where it goes from there—by then, he argued, the city would go bankrupt several times over.

It’s true that a $468-million payment would be difficult for the city to pull off—it would represent too big a chunk of the city’s general-purpose spending. For comparison, the payment this year was $229 million out of a $1.1-billion discretionary-spending plan, and, as a result, the city’s facing a deficit in excess of $50 million. [See correction at bottom.]

For the purpose of this editorial, however, the important point is that measures taken in the past six years or so will cause the amount of money the city’s required to drop into its pension fund to decrease dramatically 18 years from now. That’s because the changes that have already been made are working their magic as current employees leave or retire.

Why are we telling you this? Because San Diego’s top conservatives— DeMaio, Councilmember Kevin Faulconer, Mayor Jerry Sanders, the San Diego County Taxpayers Association and the business-oriented Lincoln Club—believe that much more needs to be done. On Tuesday, they announced that they’d agreed to support a single initiative on the June 2012 ballot aimed at further overhauling the city’s retirement system.

Currently, city workers are part of a system that guarantees the level of retirement benefits they receive—based on their salaries and how long they work for the city. In exchange, they don’t earn social security benefits while employed by the city.

A couple of the proposed initiative’s provisions would restrict how much of a current employee’s pay would factor into the benefit formula. Another provision would move all future employees except police officers to a 401(k)-style plan that guarantees the amount of money the city matches but subjects the benefits to the whims of the stock market.

Proponents say taxpayers can’t afford the current plan. But that’s true only if taxpayers don’t want to contribute enough to pay for it. Most employers are limited in what sort of retirement plan they can offer employees by how good they are at selling their products. governments are run by citizens, who decide, through the Democratic process, how much revenue will be generated through taxes.

Compared with other large California municipalities, San Diego is a low-tax (low-revenue) city, and from the middle of the 1990s to the early 2000s, city leaders promised retirement benefits they couldn’t afford. A new batch of city leaders couldn’t legally undo what had been done for current employees, but they did peck away at the problem by lowering benefits for future employees. And, again, those changes will bear fruit between 2025 and 2029.

So, what we have is essentially a 15- to 20-year problem, and it can be fixed one of two ways: Temporarily pump new revenue into the city’s general budget (raise taxes) or try to reduce what is owed to the pension fund. The proposed initiative will attempt to accomplish the latter, and we urge you to follow the scrutiny of those details (voiceofsandiego.org is already all over it).

But we’d also like you to think more broadly. Think of yourself as not only a city taxpayer, but also an employer and a citizen who cares about the future of the country. Sanders, Faulconer, DeMaio and Co. say city employees should have the same kind of 401(k) plan that you might have. They’re banking on your jealousy. Sanders told CityBeat this week that he believes a 401(k) plus social security equal an adequate retirement plan. Is that true? Or do you believe, as we do, that in a few decades, this country will be filled with seniors who can’t afford to retire but probably won’t have jobs available to them.

The mayor and the city’s Republican leaders want the public sector to join the private sector’s race toward increased poverty among the elderly. But they’re just making suggestions. You’re the employer. What kind of retirement security do you want to provide for your employees?

Correction: It turns out the figures $468 million and $229 million are citywide numbers, including enterprise funds and the Redevelopment Agency, for example, which are not "general purpose" expenses. Therefore, it's not apt to represent those numbers as slices of the city's general fund. The accurate number to compare with this year's $1.1-billion general fund is a pension payment of $177.6 million, not $229 million. We regret the error.